How A Single Book Changed My Relationship With Money

Peter H.
6 min readSep 15, 2021
Photo by Kourosh Qaffari from Unsplash

Many of us already know it. Some have not yet had the pleasure of this great book.

Which book are we talking about?

Rich Dad Poor Dad by Robert Kiyosaki.

What my relationship to money was like before reading this book:

Generally, as a solopreneur, I try to invest my money as best I can due to the low interest rate policy — and even before that. However, my relationship to debt (such as a home, car, or other purchase on credit/lease) was different.

Nowadays, with only a low credit rating, you can already get vast amounts of loans from a bank.

Do you want to buy a new home (house/apartment)?

No problem! The loan will be approved within a few days. Especially this year, taking out a loan is particularly favorable.

You want to buy a rather expensive car, although you can’t actually afford it?

No problem either. The loan or a leasing variant allows you to do it in no time.

I would like to mention here that I am not the type of person whose only goal is to splurge on luxury goods. To a large extent, I have always been relatively indifferent to them. I pursue other values and other things are simply more important to me. An investment in myself or my own business has always been a higher priority for me than a possible dream car.

One point that changed significantly for me after reading the book Rich Dad, Poor Dad is the following:

  • My relationship to liabilities.

Yes, this point can be crucial to whether or not you increase your wealth. This article is not intended to be a short summary of the book. Rather, I want to share my perspective and opinions on it. For example, I can only agree with the author to a certain extent on some points. In some (most) points, however, his statements make perfect sense.

So what is it about liabilities?

He defines in simple terms a liability as something that takes money out of your pocket. There are, of course, “good” liabilities, but it doesn’t change the fact that a liability takes money from me.

Example:

Suppose we decide to finance a great sports car, which costs us 50,000€. However, we do not have the necessary “small change” and decide to take out a loan. After debt financing, we finally own the car and are completely satisfied. Or?

Well, I think most people are. At least in the first few months. For some, this purchase even fulfills a dream. The joy lasts therefore possibly even around some longer.

But what does this have to do with liabilities and why is this approach rather suboptimal from a financial point of view?

According to Kiyosaki, a liability takes money out of your pocket. Assets, on the other hand, put money in your pocket, according to him.

So what about the car?

Well, it is purely a liability. There would still be an argument where this liability would not carry as much weight. The only one I can think of would be if you were an Uber driver with that car, generating revenue. However, we are now assuming the case of purely private use. In this case, our purchase is pulling money out of our pockets month after month. So it is a liability to the full extent.

But why is this bad?

It is bad if we are aiming for continuous wealth accumulation. We should rather focus around wealth accumulation instead of incurring liabilities like the one described above.

To many, the previous statement sounds quite logical. And yet, millions of people are doing just that. Day after day.

They create one liability after another and at the end of the day wonder why their money is not increasing. At least not to the extent they might wish.

For me, the connection to this type of liability was already there. Yet, I didn’t perceive the significance to the full extent!

So what do I conclude from this?

Minimize or, at best, avoid liabilities that only take money out of your pocket. For many of us, certain liabilities are difficult to avoid. An example would be if you have a very long way to work and need a car to get there. Even if it is a very inexpensive car, liabilities are incurred here. Month after month. So it takes money out of your pocket. No matter how you turn it around, it is and remains a suboptimal liability.

The question that one or the other reader may now legitimately ask would be “Are liabilities always bad now?”

Of course not! There are of course also “good” liabilities. For example, a loan liability for an owner-occupied apartment, which is subsequently rented out and NOT used for personal use, would be a “good” liability. It does take money out of our pockets. However, it also provides us with income (through the rent). In the best case, it even generates a positive cash flow. In the end, this means that the income from the assets (in this case the apartment bought on credit) is greater than the expenses (loan repayment and other expenses (maintenance, notary fees, etc.)).

How else did my thinking change after reading this book?

  • The reference to opportunity costs or the realization that such costs exist at all in wealth accumulation.

For all those who don’t know what the word opportunity cost means:

It is a cost incurred because one did not take advantage of a certain opportunity (possibility). In other words, opportunity costs could be described as missed opportunities.

This point only really makes sense with the concept of “liability” as defined by Kiyosaki.

Let’s stick with the luxury car example given in this article. We know, assuming the concept, that there are good and bad liabilities. In the example described, it is definitely a bad liability. It takes money out of our pockets and generates none for us. Now the reference to opportunity cost:

What if.

Personally, I don’t really like initial sentences like this. Nevertheless, to better illustrate the relationship between liabilities and opportunity costs, I would like to start with this sentence starter.

What if, instead of the car, we had invested in a property (to rent it out afterwards)?

In that case, we would also have built up a liability again. Only this time, a liability that also represents an asset. The loan to be paid is a liability in this case. The apartment itself and the rental income generated by it represent the asset.

Now, unlike the car purchase, we have simultaneously purchased/developed an asset. We thus choose this opportunity (possibility), where we create an asset, than and to opt for the luxury car variant, where we only generate negative liabilities.

I think at this point it should be clear that the more you “invest” in negative liabilities, the more extreme the opportunity cost accumulates over time.

Summary:

Liabilities can be perceived as both positive and negative. Positive liabilities, at best, simultaneously generate assets. Negative liabilities merely generate expenses.

So, if one reduces the number of negative liabilities and, on the other hand, creates assets, a continuous asset accumulation is the logical conclusion. Moreover, this asset does not necessarily have to be created with positive liabilities. For example, when selling one’s online course or the like, in most cases there are no liabilities.

Finally, I can give a clear reading recommendation to anyone who has not yet read the book. For me, reading this book was an emotional roller coaster with some very frightening insights.

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Peter H.

Digital Business enthusiast, Teacher for Data-driven Marketing, E-Commerce-Agency founder, Life Long Learner.